Caution: Corporate tokens are not real cryptocurrencies!

When companies like JPMorgan Chase or Facebook come out with their “cryptocurrencies,” it’s a lot of excitement.

“Super! Now the crypts are really starting to do without it,” they think.

Okay, maybe really. But the tokens they issue are not real crypts. And it doesn’t make much sense to buy them. (Even if they can be purchased in some way.)

If you want to take part in these ventures, it is better to buy shares or other securities of these companies.

The source of the misunderstanding is this: When people hear something about a blockchain, many automatically think of Bitcoin, Ethereum, or some other form of cryptocurrency.

In fact, the block circuit – and, more broadly, shared general ledger (DLT) technology – has many other uses. And they probably don’t have the slightest thing to do with cryptocurrencies. They certainly have nothing to do with open, publicly available cryptocurrencies.

This is important. Because it directly affects WHAT you invest in:

• When a shared general ledger (network) is public and open – as in the case of Bitcoin, Ethereum, EOS or Tron – it is always accompanied by cryptocurrency on the public market. If nothing else distinguishes them, then if the network is successful, the crypto value should also increase. We call them “coins” or “local tokens.” They are created for a specific network and are expected to remain there. So the more people use the network, the more reason to expect their coins to grow in value. But…

• If the shared ledger is private and closed, as in the case of the recently announced JPM Coin or Facebook Coin, the story is quite different. In these cases, you may not be able to invest in a coin or local token directly. It is also possible that there is no token. The best way to reap the benefits of such a blockchain is to simply buy shares in the company. (Assuming, of course, that the company’s revenue, which is not related to the block chain, is decent.)

To better understand this contrast, think about how different these public and private worlds really are …

In the world of public cryptocurrencies, there are two important reasons why networks have tokens.

First , the token itself is often the creator of the value of the network: For example, in the case of Bitcoin, the Bitcoin token is the only reason why the network even exists.

Second , the token is often an incentive for people to perform tasks for the general ledger: A good example of this is platforms with smart contracts, such as Ethereum and EOS. There is an important reason for the existence of Ether and EOS tokens – to pay people who share their computer resources and perform computational tasks for the benefit of network users.

These networks are not controlled by companies with employees. They are open to the public and can be run by almost anyone who wants to be a part of it.

So without the tokens that pay participants, there would be no one to work, and no one to share their computer time with.

And right: if they don’t get anything for it, why should anyone bother?

But…

In the world of private companies, we see no reason to create cryptocurrencies.

Let’s say the network is controlled by a company like Facebook or JPMorgan Chase. Or let’s say it’s run by an insurance company that wants to use smart contracts to process insurance claims; or maybe even a government that wants to use this technology to improve its voting systems.

Do any of them need a publicly available cryptocurrency?

Simple answer: No!

If Facebook wants to use the blockchain (or any DLT) to streamline its workflows, it will hopefully be driven by a better consumer experience, increased customer loyalty, and higher shareholder returns.

Read also: What gives tokens their value?

Agents and policyholders benefit from a mutual insurance company setting up a general ledger to speed up its workflows. But they already have an incentive to do their best to make the business flourish. And when it comes to a listed insurance company, shareholders also have that incentive.

The same goes for hospitals. If they decide to use a common ledger to share patient information, access to this database will be a sufficient motivation for healthcare professionals and patients. Healthcare workers are paid in any case. However, patients simply want their data.

These are just a few examples that come to my mind at the moment. But their common feature is clear:

For most private versions of DLT, access to the network is already a sufficient incentive to participate. No other incentives should be needed.

So let’s go back to JPMorgan and see how it works …

JPM Coin will most likely be used only for internal operations – to move money between different departments. The aim is to start replacing slow, expensive intermediary payment companies such as SWIFT, which form a strong international market for interbank payments.

If you are the head of a JPM branch and want to take advantage of this new technology, you must be an approved member of that network. And you may have to invest your computer resources in running this network.

But here’s the conclusion: Neither you nor anyone else can ever allow anyone outside the network to join. This is why JPM does not need – and probably does not create – a coin on the public market.

Any other institution wishing to use this technology for such applications is likely to follow a similar pattern …

In the case of government voting systems, only people with the right to vote can participate.

In the case of hospital networks, patient data is protected by privacy laws. Only patients themselves – and their designated healthcare professionals – can access them.

None of them require public participation.

In that case: why should these institutions want or need cryptocurrencies at all? Our answer …

Phenomena such as JPM Coin or Facebook Coin are useless at best and possible fraud at worst.

As I have said from the beginning, there seems to be a common misconception here:

Many people seem to think that if a company “deals with the blockchain”, it immediately means that there is some cryptocurrency involved.

Usually not. And if it is, it is probably not necessary.

Don’t get me wrong. Shared General Ledger technology has many significant business uses, and we are pleased that large companies have begun to take advantage of them.

Just remember that most of them never create a token for their network. When they do, it just leaves me in demand.

There are better reasons to rejoice elsewhere …

Public, open ledgers with real cryptocurrencies can help private, closed ledgers. And vice versa!

For example, imagine that you can trade Alphabet or Apple shares on a public platform based on shared general ledger technology.

Now imagine that you can also trade cryptographic assets on this same platform.

Convenient, right? But it doesn’t end there.

Next, consider this option: When you buy shares in a company, you get shareholder rights and much more, as a shareholder, to vote not only on ordinary business matters, but also on a number of other issues that may affect your profits.

Or consider securing some of your non-liquid assets – such as real estate, works of art, antiques and other collectibles – with tokens and then offering units of your assets on such platforms. Or even exchange them for assets backed by other tokens.

All this is significantly different from what happened in 2017-2018.

Cryptodes 2017. During the 2006 superboom, anyone who could afford it could issue their own tokens, which they then sold to unsuspecting investors as ICOs (Initial Coin Offering). At the time, it didn’t seem to matter if they actually needed these tokens.

We are seeing a big change: As the cryptographic industry grows and develops, most companies will only start creating cryptographic assets when they are really needed. Otherwise, they will remain with token -free and licensed versions of general ledgers. No cryptographic assets.

But we’re not there yet. Initially, fraud must also be taken into account. So the next time you invest in a cryptographic asset, be sure to ask yourself: Is there a reason why this token exists? If not, we recommend that you stay away from it.

And always remember: The block chain is one thing. Cryptographic money is another.

The best,

Juan

Article – Weiss Ratings

Translation: Lucreds Plus OÜ